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Decoupling of economies affects Asian trade development

Asia coped relatively well with the Covid-19 pandemic and an economic recovery is expected in 2021, though with several challenges to trade in the region
9 Dec 2020
Asia coped relatively well with the Covid-19 pandemic and an economic recovery is expected in 2021, though with several challenges to trade in the region. Find out more in this regional economic outlook. Decoupling of economies affects Asian trade development Asia coped relatively well with the Covid-19 pandemic and an economic recovery is expected in 2021, though with several challenges to trade in the region Key points Economic recovery has started in most Asian countries, with underlying growth strongest in Vietnam and China. India has the weakest starting position. Thailand, Malaysia and China have supported their economies with more fiscal stimulus than other countries in the region. However, the Chinese authorities will restrain themselves now, in order to avoid a further increase of macro leverage. The new Five-Year-Plan means China will focus even more on domestic, consumer-led growth than before, and less on exports. Despite the external pillar in the ‘dual circulation’ strategy, China’s aim to be less reliant on foreign technology and better equipped to external shocks will strengthen the international trend of decoupling of economies. With a new administration, the US will maintain a tough approach to China, albeit one that is more predictable and less confrontational. By working together with the EU, Japan and other allies, the Biden administration – avoiding the Trump administration’s confrontational attitude – will probably be more successful in persuading China to introduce changes in trade, competition and other relevant areas. Regional supply chains are changing because of rising wage costs in China and changing trade policies. Covid-19 will probably accelerate this process, because dependence on only one country has proven problematic. Based on relative attractiveness, Vietnam, Malaysia and Singapore stand out as the countries best positioned, but in different sectors.